Assessing a bank’s performance

Netty Skok-Farrugia (July 31) quoted figures for Volksbank Malta’s 2011 results that differ from those in the table accompanying my article (APS And Foreign-Owned Banks’ Statistics At A Glance, July 19).

Without going into too many technicalities, an assessment of a bank’s performance depends on what accounting policy is adopted. On reflection, I accept that, so as to place all the banks reviewed on a level playing field, it would have been better had I not quoted pre-tax profits but the final other comprehensive income (post-tax) figures for all six banks reviewed, in view of the fact that, in 2011, the impact of other comprehensive income on their bottom line performance varied immensely. Under this heading fall such items as changes in fair value of available-for-sale financial assets and derivatives held for hedging purposes.

Indeed, in the case of Volksbank Malta in 2011, these two items accounted for a negative figure of €4.34 million resulting in a post-tax profit of €4.26 million being turned into a negative total comprehensive income for the year of -€131,000 after tax. The comparative figure for 2010 was a positive €4.5 million. Thus, it is not fair to say that my article gave “a completely wrong impression of Volksbank Malta”.

To compare like with like, I quote hereunder the 2011 total comprehensive income (post-tax) figures for all six banks. The figures are in million euros and are listed in descending order: NBG 14.77; APS 2.41; Izola 1.66; ING 0.20; Volksbank (-0.13); Sparkasse (-0.60).

Thus, both Volksbank and Sparkasse returned negative final results in 2011.

As regards my reference to interbank funding, I do not see much difference between the term I used and Ms Skok-Farrugia’s clarification that, in the case of Volksbank Malta, the amount is due to related companies. Indeed, in the bank’s balance sheet (page 7) this particular item is shown as loans and advances owed to banks. Note 27, to which she refers, then states that €389.90 million (that is, 88 per cent of the total funds raised figure of €442.27 million) is made up of dues to related companies. Thus, the balance of €52.37 million was raised from other banks. The fact remains that, as at December 31, 2011, customers’ deposits accounted for a mere 3.6 per cent of funds raised compared with as much as 96.4 per cent by way of raisings from related companies/other banks. Whether or not reliance on inter-bank funding is a more secure or volatile source of funding is very debatable and, of course, depends on a number of factors.